Federal Reserve Governor Stephen Miran is advocating for aggressive monetary easing in 2026, calling for interest rate cuts exceeding 100 basis points while other Fed officials suggest current rates may already be approaching neutral levels. The divergent views highlight ongoing disagreements within the central bank about the appropriate policy stance as officials balance employment and inflation concerns.

Miran's Case for Aggressive Rate Cuts

Speaking on Fox Business Network, Miran argued that monetary policy remains "clearly restrictive and holding the economy back," rejecting suggestions that rates have reached neutral levels. He emphasized that "well over 100 basis points of cuts are going to be justified this year," pointing to gradual labor market weakening despite some officials' inflation concerns.

Miran has consistently dissented since joining the Fed in September, advocating for half-percentage-point reductions at each meeting while the committee opted for quarter-point cuts. His term as Fed governor ends this month after taking leave from his role as chair of the White House Council of Economic Advisers.

Other Officials Signal Caution

In contrast to Miran's aggressive stance, other Federal Reserve officials suggest current interest rates may already be close to appropriate levels. Richmond Fed President Tom Barkin noted that rates are now "within the range of its estimates of neutral," referring to December projections, while Minneapolis Fed President Neel Kashkari indicated "we're pretty close to neutral right now" given resilient economic growth.

Barkin emphasized the need for "finely tuned judgments balancing progress on each side of our mandate" in future policy decisions. He highlighted the delicate balance facing policymakers: "With the hiring rate low, no one wants the labor market to deteriorate much further; with inflation above target now for almost five years, no one wants higher inflation expectations to get embedded."

Policy Outlook and Economic Context

The Federal Reserve cut rates for three consecutive meetings through December, bringing the benchmark rate to its current 3.50% to 3.75% range. However, officials signaled that additional near-term reductions aren't guaranteed, with policymakers split over inflation and labor market outlooks.

The 19 policymakers on the Federal Open Market Committee have varying estimates of the neutral interest rate, ranging from 2.60% to 3.90%, though the median estimate stands at 3.00%. This wide range reflects uncertainty about the appropriate long-term policy stance as the economy continues adapting to post-pandemic conditions.

As the Federal Reserve navigates its dual mandate of maximum employment and price stability, the debate between Miran's aggressive easing approach and other officials' more cautious stance will likely influence future policy decisions throughout 2026.

New research from the San Francisco Federal Reserve is challenging long-held assumptions about the relationship between tariffs and inflation, suggesting that steep increases in trade barriers may actually ease price pressures rather than drive them higher. The findings come as policymakers grapple with the economic implications of significantly elevated US import duties.

Historical Analysis Reveals Unexpected Pattern

The San Francisco Fed study examined approximately 150 years of historical data from the United States, France, and the United Kingdom. The research found that large tariff increases have historically coincided with rising unemployment and downward pressure on inflation, rather than the sustained price acceleration that many economists would expect.

This analysis takes on particular significance given the current trade environment:

Federal Reserve Policy Response

The Federal Reserve initially kept interest rates unchanged for much of last year due to concerns that tariffs would contribute to inflationary pressures. This caution reflected both theoretical economic models and empirical evidence suggesting that higher import costs would be passed on to consumers.

However, policy shifted by September as mounting signs of labor market weakness emerged alongside growing confidence that any inflationary impact from tariffs would prove temporary. The central bank ultimately reduced short-term borrowing costs by a total of 75 basis points in 2025 as economic momentum softened and inflation pressures continued to ease.

Modern Economy Considerations

The researchers acknowledged important limitations in applying historical patterns to today's economic landscape. The modern US manufacturing sector demonstrates far greater dependence on imported inputs compared to earlier periods, potentially making current tariffs more likely to generate cost pressures that flow through to consumer prices.

The study identified several factors that may explain why inflation historically declined during tariff episodes:

• Heightened economic uncertainty accompanying major trade policy changes
• Declines in equity markets during tariff implementation periods
• Reduced consumer confidence dampening overall demand
• Weaker asset prices offsetting direct price effects of higher import costs

Contemporary Economic Dynamics

Notably, the researchers did not assess how closely historical dynamics applied to last year's experience. While economic uncertainty rose sharply by several measures, US stock markets posted double-digit gains, supporting household spending and helping maintain overall economic growth resilience despite higher trade barriers.

Policy Implications

The findings contribute to an ongoing debate among policymakers about how tariffs influence inflation and economic growth. The research raises questions about whether central banks should treat trade-driven price pressures as temporary economic shocks rather than justification for prolonged monetary policy restraint.

The study suggests that interest rate cuts may represent an appropriate policy response if historical patterns continue to hold, though the unique characteristics of the modern economy warrant careful consideration in policy formulation.